IAG Shares Hit New High After Goldman Sachs Upgrade and Strong YTD Rally

International Consolidated Airlines Group shares (LON:IAG) hit a new high of 425.50p today, marking a potential inflection point in breaking 420p after a strong year-to-date performance of 39.57%. The share price movement reflects a confluence of factors, including positive analyst upgrades, robust financial results, and strategic realignments.

The stock's ascent gained momentum following an upgrade from Goldman Sachs on October 22nd, moving from ‘Neutral' to ‘Buy.' The new price target was set at 470p, a significant increase from the previous 400p. Goldman Sachs's positive outlook hinged on expectations of a more favorable trading environment, fueled by increased premium demand and disciplined capacity management, especially on transatlantic routes. This reinforces earlier bullish sentiment from JPMorgan, which maintains an ‘Overweight' rating with a price target of 550p, positioning IAG as its top pick for the year.

Supporting this positive sentiment are IAG's Q1 2025 financial results, which revealed a 9.6% revenue increase and an operating profit before exceptional items of €198 million. This represents a notable €130 million increase compared to the previous year, with the operating margin improving by 1.7 percentage points to 2.8%.

Strong demand for air travel, particularly in premium cabins, has contributed significantly to these results. The company also completed €530 million in share buybacks and has proposed a final dividend of €288 million, demonstrating a commitment to shareholder returns.

However, IAG's strategic moves have not been without their complexities. The termination of the planned acquisition of Air Europa in August 2024, due to regulatory concerns over reduced competition, initially sent mixed signals. Despite the deal's collapse, the stock gained over 6% following the announcement, partly driven by the reinstatement of dividends with an interim payout of 30 cents per share – the first since 2019.

Looking ahead, IAG is exploring new avenues for growth, with CEO Luis Gallego expressing interest in acquiring TAP Air Portugal. Gallego believes that TAP aligns better with IAG's strategy than with competitors like Lufthansa and Air France-KLM, primarily because it would strengthen IAG's presence in the Atlantic market and provide enhanced access to Brazil. He anticipates fewer regulatory hurdles than the Air Europa deal, given the minimal operational overlap with competitors.